I just wish there was a way we could rid all of the economy's current items because it's so saturated with them.

They want to change the way current items are valued such that what's important now will no longer be important or as important. By doing so they will essentially be flushing the current economy of items since they'll no longer be worth anything or as much. This assumes they're successful with their goals.

Lots of factors go into making an item good, and one of those factors is how high the stats on the item can roll. When the game first launched, an item's potential stats were largely indicated by its item level. This made it so you'd know in advance whether or not an item was worth the trouble of identifying. In 1.0.5, we made it so that the stat ranges for affixes were based on the level of the monster or container that dropped the item rather than the item's level, which created the possibility of more items rolling competitive values.
We’d like to continue with this line of reasoning and use it to make Legendaries more powerful. In the future, we plan to allow Legendary items to also roll their base stats (weapon DPS and armor value) at the level of the monster that dropped them. So, for example, if you found a Heart of Iron from a level 63 monster, its base armor would be increased to that of Archon Armor and its stat ranges would roll at level 63. This gives us the opportunity to broaden the range of Legendary items, providing players with more diversity. Love Leoric's Signet, but hate wearing a level 17 ring? Me too. Instead of farming Act II Normal to find a Leoric's Signet, let's go farm Inferno and get a level 63 version of the ring!
(Everything we're suggesting for Legendaries also applies to Sets, too, by the way.)

probably not. What exists now would probably just have lower rolls than a new drop would have. Kinda like how mempo was bugged for a while (pretty much all of 1.0.4 IIRC), and rolled 2 random stats rather than 1 random stat and a primary stat. The bugged ones didnt get any sort of special notification that they were bugged, they were just (in most cases) much worse than non-bugged mempos.

Even more than changing the way the items work they're wanting to change the way that we get the items. They hope to make it so that you will be able to find items that are useful to you. In essence they're wanting to make it such that players do not rely on the AH for gear upgrades, which will in effect drive down Demand in the AH Market.

Perfect example is to look at how the market for rare shoulders, chests, bracers and amulets have changed since patch 1.0.7. Exceptional pieces that have been found are still sellable, just not as high as they once were. All the mid range and low range items that are dropped are no longer selling.